June 25, 2020

U.S. Weekly FundFlows Insight Report: Fund and ETF Investors Warm to Fixed Income Funds for the Flows Week

by Tom Roseen.

For the second week in three, investors were overall net purchasers of fund assets (including those of conventional funds and ETFs), injecting $7.1 billion for Lipper’s fund-flows week ended June 24, 2020. Fund investors were net purchasers of taxable fixed income funds (+$11.3 billion) and municipal bond funds (+$1.5 billion) while being net redeemers of equity funds (-$5.0 billion) and money market funds (-$726 million, the group’s sixth consecutive week of net redemptions) this week.

Market Wrap-Up

Markets took a drubbing during the fund-flows week as investors focused on rising COVID-19 cases, increasing trade tensions, and a narrow rally in technology stocks that has been driving markets higher.

On the domestic side of the equation, the Dow Jones Industrial Average Price Only Index and the Russell 2000 Price Only Index (-2.58% each) witnessed the largest downside performance for the fund-flows week of the broadly followed U.S. indices. Their performances were bettered by the NASDAQ Composite Price Only Index (-0.01%). Overseas, the Shanghai Composite Price Only Index (+1.64%) chalked up the only plus-side return of the often-followed broad-based global indices.

On Thursday, June 18, the broad market indices were mixed, with the Dow posting its second consecutive daily decline while the NASDAQ chalked up its fifth plus-side trading day. Investors weighed the news of rising cases of the coronavirus against a rally in energy and consumer staple stocks. Market participants learned that U.S. weekly new jobless benefit claims for the prior week rose by 1.5 million, outpacing analyst expectations of 1.3 million. Although helping keep a lid on declines, the Bank of England announced that it would increase its bond buying efforts by £100 billion. On Friday, June 19, the Dow stumbled again after Apple announced that it will reclose 11 stores in Arizona, the Carolinas, and Florida due to rising COVID-19 cases and after the World Health Organization (WHO) said the coronavirus has entered a “new and dangerous phase.” Both near-month crude oil and gold prices posted strong gains on the day.

However, on Monday, June 22, all three broad-based U.S. market indices got a shot in the arm after the rally in information technology issues helped the NASDAQ close at a record high and the Dow ended the day above 26,000. Despite the WHO reporting the largest single-day increase in global COVID-19 cases on Sunday, investors appeared to embrace better-than-expected economic news and hopes that Congress will pass another fiscal stimulus package soon.

The market continued its upward climb on Tuesday as Apple powered to a new closing high as some investors cheered announcements from its Worldwide Developers Conference. The market rally was further supported by Treasury Secretary Steven Mnuchin stating that he anticipates a new round of COVID-19 stimulus to pass Congress in July and after the IHS Markit’s June preliminary composite purchasing manager’s index rose to 46.8 from 39.8 in May. Gold futures closed at a near eight-year high on the day. On Wednesday, June 24, the equity market took it on the chin after Connecticut, New Jersey, and New York each announced 14-day quarantines on visitors from states with high coronavirus cases and after Johns Hopkins University data showed a 30% increase in the seven-day average of daily new COVID-19 cases compared with the week prior. Investors also digested news that the U.S. was considering imposing tariffs on goods from France, Germany, Spain, and the U.K. The Dow plunged 710 points (-2.7%) for the day.

Exchange-Traded Equity Funds

For the second week in a row, equity ETFs witnessed net outflows, handing back $1.9 billion for the most recent fund-flows week. Authorized participants (APs) were net sellers of domestic equity ETFs (-$1.5 billion), withdrawing money also for the second consecutive week. For the sixteenth week in 17, nondomestic equity ETFs witnessed net outflows, handing back $454 million this past week. SPDR Gold ETF (GLD, +$2.3 billion) and SPDR Dow Jones Industrial Average ETF (DIA, +$805 million) attracted the largest amounts of net new money of all individual equity ETFs. At the other end of the spectrum, Invesco QQQ Trust 1 (QQQ, -$1.2 billion) experienced the largest individual net redemptions, and Schwab Fundamental U.S. Large Company Index ETF (FNDX, -$715 million) suffered the second largest net redemptions of the week.

Exchange-Traded Fixed Income Funds

For the thirteenth week in a row, taxable fixed income ETFs witnessed net inflows, taking in $4.1 billion this last week. APs were net purchasers of government-Treasury ETFs (+$2.4 billion), corporate investment-grade debt ETFs (+$2.1 billion), and flexible ETFs (+$422 million), while being net redeemers of corporate high-yield ETFs (-$810 million) and international & global debt ETFs (-$207 million). Schwab U.S. TIPS ETFs (SCHP, +$1.2 billion) and iShares 20+ Year Treasury Bond ETF (TLT, +$554 million) attracted the largest amounts of net new money of all individual taxable fixed income ETFs. Meanwhile, SPDR Bloomberg Barclays High Yield Bond ETF (JNK, -$574 million) and Schwab Intermediate-Term U.S. Treasury ETF (SCHR, -$481 million) handed back the largest individual net redemptions for the week. For the eighth consecutive week, municipal bond ETFs witnessed net inflows, taking in $286 million this week.

Conventional Equity Funds

For the ninth week in a row, conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $3.0 billion, with the macro-group posting a 1.57% market decline for the fund-flows week. Domestic equity funds, suffering net redemptions of just $305 million, witnessed their second consecutive weekly net outflows while posting a 1.99% market loss on average for the fund-flows week. Nondomestic equity funds—posting a 0.63% decline on average—experienced their twelfth consecutive weekly net outflows, handing back $2.7 billion this past week. On the domestic equity side, fund investors shunned mid-cap funds (-$509 million) and small-cap funds (-$413 million), while for the second week in three they injected net new money into the coffers of large-cap funds (+$637 million). Investors on the nondomestic equity side were net redeemers of international equity funds (-$1.8 billion) and global equity funds (-$938 million).

Conventional Fixed Income Funds

For the eleventh week in a row, taxable bond funds (ex-ETFs) witnessed net inflows—taking in $7.3 billion this past week—while posting a 0.40% market decline for the fund-flows week. Investors were net purchasers of corporate investment-grade debt funds (+$5.8 billion) and corporate high-yield debt funds (+$722 million), while flexible funds (-$34 million) and corporate high-quality funds (-$26 million) witnessed the only net outflows of the group. For the seventh consecutive week, municipal bond funds (ex-ETFs) witnessed net inflows—taking in $1.2 billion. The fund group posted a 0.19% return on average for its eighth straight weekly market gain.

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